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feel, that it would be desirable perhaps to retain minimum acreage restrictions if that were possible consistent with the maintenance of a sound burley-tobacco program.

In the situation which we find ourselves today, minimum acreages cannot be retained at a seven-tenths basis as they are under the present statute. It has been suggested that the seven-tenths acre constitutes an irreducible minimum. That perhaps might have been true in a day of much snaller yields than we are realizing now.

Today it is not an irreducible minimum as evidenced by the fact that of the 207,100 acres under seven-tenths, 106,000 of those acres are allotments of five-tenths and six-tenths an acre.

None of us want to run the risk of reducing the income of the small grower below the point where he can maintain a minimum standard of living. But tobacco, as Mr. Gilmer pointed out, is not the only cash crop. Furthermore, we must realize that growers today can make more money on five-tenths of an acre than they could make on 142 acres in the absence of our control program

There is not a single grower or a single warehouseman, large or small, who wants to see any further restrictions on acreage. The big grower is just as opposed to a cut and so is the tenant, as any small producer.

As you have been told repeatedly, this is not a battle between the big grower and the little grower at all. In defense of the big grower, however, it might be pointed out, as Mr. Berry suggested, that the impact of a cut in some respects is much harsher as far as he is concerned, because he must continue to pay his ad valorem taxes, his real estate taxes, his insurance, interest on any mortgage that he has to service and yet his gross income is being curtailed substantially. His fixed costs remain constant even though he does have to suffer a cut. If, however, we are to impose a change in the statute this year at this time, I certainly agree with Mr. Taylor that it should be done only by referendum. Furthermore, it occurs to me that the suggestion which has been made by 2 or 3 witnesses should be incorporated into the proposal. At the earliest possible date, these seven-tenths minimum growers today and smaller growers should have any cuts that they must suffer now restored.

In the past, whenever we have had an increase in acreage that increase in

acreage has been shared by all growers and not those who have taken cuts in the past. It is unlikely, I suppose, that we shall ever be able to restore the basis to the old growers which they enjoyed in 1940. At best we can only hope perhaps to restore the cuts which must be made in 1955 and in 1956.

But when in some future year those cuts are restored, it seems to me that those increases should be shared only by those growers who have taken cuts. It hardly seems fair to spread any increase among all growers including new growers as well as those who have never suffered any cuts at all. That provision of any amendment would provide simply that all increases would be shared by those who have suffered decreases in an inverse chronological order. That is, you would restore the cut made at the last preceding time that a cut was decreed before carrying it back to a prior year.

We would like to point out to the committee, too, the importance of the many noncontroversial recommendations made by the Eight-State Committee and also by the Burley Tobacco Growers Cooperative Association. There has been little mention of those today. The feature such as the provision that the penalty language of the statute is designed to implement public policy so that penalties will no longer be available as income tax deductions. All of those relatively minor recommendations made by the Eight-State Burley Tobacco Committee are actually quite important because, while you are enacting remedial legislation, we hope that you will give us a complete package so that we will not have to come back here again and again seeking this minor alteration and that minor alteration.

It would be our clear preference, if possible, for you to incorporate together the recommendations of the Eight-State Burley Tobacco Committee and the suggestion made by Mr. Taylor this morning. I sincerely appreciate the opportunity of appearing before you. If

. you have any questions I will be glad to try to answer them.

The CHAIRMAN. Mr. Clay, we appreciate very much your coming here and giving us the benefit of your knowledge.

Are there any questions?

Mr. Watts. I want to thank Mr. Clay for his splendid statement. I want to call his attention to the fact that according to the Parliamentarian that the feature of the income tax would be a matter that would have to be addressed to the Ways and Means Committee which would make it probably impossible for us to include it in our legislative package.

Mr. Clay. Mr. Watts, with due deference to your Parliamentarian, there are a number of divisions of the Tax Court which hold that when any penalty in any of your statutes is designed to implement public policy and it is so recited for that purpose, it is nondeductible taxes.

The CHAIRMAN. You misunderstood the Congressman. What he meant is that this committee could not initiate that phase of legislation.

Mr. Clay. I am differing with that, maybe inadvisedly, but I do more work in the field of tax law than tobacco. The Tax Court has had it before it repeatedly, the question of deductibility of penalties when the statute setting up the penalty is not explicit as to whether or not the penalty was designed to implement pubìic policy. The Tax Court has taken the position in its own language there are penalties and there are penalties, and some are designed to implement public policy and some are not. A mere indication of congressional intent of whether the penalty to implement public policy would make it nondeductible and it would not constitute in my opinion revenue legislation.

I would like to suggest that your Parliamentarian examine in that connection the case of Jerry Rossman Corporation v. The Commissioner which is reported in 175 Federal 2d, 711.

Mr. WATTS. It is entirely possible that the Parliamentarian could be wrong or I did not present the problem to him in the light it should have been presented. Mr. Clay. Or that I could be wrong.

Mr. Watts. It is your thought that the act should provide a penalty which penalty shall be against public policy and that it would be nondeductible. We will explore that and I am sure the committee will be glad to put that in the bill if the Parliamentarian says we can.

The CHAIRMAN. We certainly do thank you, sir.
Mr. CLAY. Thank you.

Mr. WATTS. I have another distinguished Kentuckian here. I think he has a statement he wants to make. He is Lorenzo K. Wood. He is the attorney for the dealers' association. He has had long experience in tobacco-I will not say for how many years, but before I can remember—and I am sure he will give us the viewpoint of the dealers on their problems.



Mr. Wood. Thank you, Mr. Chairman, and you gentlemen of the Senate and House committee.

When my office called me yesterday morning and said I had a wire from Senator Clements and John Watts inviting me to attend this hearing and that I also had a call from the farm bureau requesting me to come, I told her to make a reservation on a plane, and I got in here yesterday afternoon.

My name is Lorenzo K. Wood, an attorney in Louisville, Ky. I have had the pleasure for a number of years of being general counsel for the Burley Leaf Tobacco Dealers Association.

These 50 or more members of our association buy not alone burley tobacco but all types of tobacco in all of the markets in the United States. They process that tobacco and sell it in various parts of the world. There was a time probably when some folks thought that the dealer was only interested in buying his tobacco as cheap as he could. I happened to have been born and raised on a small farm in western Kentucky. I well remember the last crop of tobacco I raised. I sold that tobacco for 3, 2, and 1.

You talk about depressions. That was really one of them. That was just before the night-rider days in western Kentucky in which the farmers are charged with having taken the program into their own hands. I would not know about whether they did or not. But I then quit raising tobacco.

The greatest pleasure I have had, gentlemen, as an attorney for my people, is to work with the growers and the various cooperative associations, the tobacco association here in Washington, and you Members of the House and Senate, in trying to promulgate and set out an effective tobacco program.

For the last 25 years, you gentlemen of the Congress in cooperation with the people have developed a program that has been and is a success. The excessive growth of tobacco, the loss of the sale of certain types of burley tobacco, has brought us into serious days. We are here today to say to you gentlemen we want to and will continue our cooperation as dealers with all of you in tobacco, looking toward the relief that it is our feeling we must have.

We have no desire for the tobacco program to fail in order that the dealer might buy it at a reduced price. In the first place, we have not the desire and, in the second place, unless the farmer gets a reasonable price for his tobacco, the program is bound to fail and none of us would benefit thereby.

Therefore, in the best of good faith and in all eagerness, we are here to cooperate with you in this program. I have enjoyed the suggestions of the day. There is much fruit in these suggestions. It is my confident feeling that you gentlemen of the House and Senate will sift from and pick therefrom and consolidate a program that, may I say, must be had if you are to save your tobacco program. Nobody likes to take castor oil, but I took it when I was a boy, and I got over the little sour apple and the feeling I had developed by reason of certain indiscretions on my part at that time.

I believe and I believe I know the tobacco farmer in KentuckyI talk with them in the 120 counties all over the State as I am invited into their meetings and as I invite them into our meetings—when they know the facts, and the thing I like about your proposal here is you go to them with the referendum giving them an opportunity to decide what they want to do with their program, they will act sensibly. That is democracy. That is good government.

I simply came here for the purpose, and I thank you for the opportunity to express to you the very deep concern that we feel about this burley program, and it is just around the corner for flue-cured and other types of tobacco unless we exercise proper controls.

The CHAIRMAN. Mr. Wood, we appreciate so much your coming. We deeply appreciate your sentiments and attitude of cooperation in the matter.

Mr. Wood. Thank you so much.

Mr. Watts. I overlooked asking Mr. Berry one question that I wanted to ask him, if the Chair would indulge me. I would like to ask Mr. Berry one question.

Mr. Berry, have you had the opportunity in addition to hearing Mr. Taylor to read his 1-page proposal?

Mr. BERRY. I have, sir.

Mr. WATTS. I understand that your association probably has not had a chance as a group to make a study of that proposal. But I would like to ask you, as a tobacco grower, and insofar as you can, speaking for the Burley Tobacco Growers Cooperative Association, what do you think their reaction would be to that proposal ?

Mr. BERRY. I think the reaction of the board of directors of the Burley Association of Kentucky would be agreeable to the proposal brought here by Mr. Randolph Taylor. One very salutary feature of it, I think, is that it will refer back to the growers themselves the right of determining their own course of action, which after all has been the feature of this program that has been most desirable and most sensible.

Mr. WATTS. I thank you.

Mr. BERRY. Mr. Chairman, some of the members of the committee were inquiring if there might be filed for the record the recommendations of the Eight State Committee and of the Burley Tobacco Growers Cooperative Association of Kentucky, and I have those recommendations, and I desire to file them for the record at this time.

The CHAIRMAN. Without objection, they will be inserted in the record at this time. (The information referred to above follows:) BURLEY TOBACCO GROWERS COOPERATIVE ASSOCIATION, INC.,

Lexington, Ky., February 23, 1955. Hon. Ezra TAFT BENSON, Secretary of Agriculture,

Washington, D. C. DEAR MR. SECRETARY: Realizing the seriousness of the burley tobacco supply situation and cognizant of the need for changes in both administration and legislation in order to protect the present quota and loan program, the directors

of the Burley Tobacco Growers Cooperative Association submit the following for your consideration and respectfully request that those pertaining to legislation be recommended by you to the Congress of the United States and to the proper committees thereof.

In the field of administration, it is recommended that:

1. Immediate steps be taken to send adequate personnel from the proper branches of your Department into the burley-producing areas to acquaint the growers through public meetings and press releases of the burdensome supplies on hand and advise them of the administrative and legislative action necessary to have real production control.

2. Aerial surveys be required annually during the growing season. 3. The use of tolerance in calculating acreage be eliminated.

4. Employees and supervisors dealing with measurements be nonresidents of county and work in pairs.

5. That subsections (a) and (b) of paragraph 725.616 of the burley and fluecured tobacco marketing quota' regulations, 1955–56 marketing year be deleted.

6. The percentage of total acreage allotted for new growers and acreage adjustments be cut from 0.5 of a percent to 0.1 of a percent.

In the field of legislation, we recommend that: 1. Production of nonquota tobacco shall not give any entitlement to a quota.

2. Excess production by an allotment producer shall result in a penalty of allotment reduction in an amount equal to the excess production in the prior year.

3. The penalty for marketing excess tobacco be increased to 75 percent of the previous year's average market price on the entire production of the excess producer rather than only on the excess marketed.

4. Provision be made for criminal punishment as misdemeanor of not more than 1 year or not more than $1,000, or both, for willful inaccurate measurement, the penalty applying to the Government employee only.

5. Poundage control in conjunction with acreage control be established and the maximum production be limited to 1,800 pounds per acre. In writing a poundage-limitation statute, it should be provided that a producer failing to have a production equal to his maximum allotment may carry as much as 20 percent of his maximum allotment, but no more than the deficiency, over to the following year. This would discourage the purchase of unused eligible poundage on allotment cards.

6. If necessary to further keep production in line, study should be given to the use of plant control as an alternative using a limitation of not more than 8,500 plants per acre. This would allow for marketing of all tobacco on the plant and allay the fear of manufacturers that poundage control would not allow them the opportunity to purchase all of the desired grades.

7. Provision be made that whenever there is an increase in quota, the increase shall be shared only by those having taken a decrease in quota in prior years, until all decreases have been restored. 8. All minimum-allotment provisions of the present act be repealed.

9. The Secretary of Agriculture be authorized to redetermine and set marketing quotas for 1955: Provided, however, that any cut in the aggregate (including the 10-percent cut heretofore announced for the 1955 crop) he might make, will affect all growers of burley tobacco alike. Respectfully submitted.



Lexington, Ky., February 19, 1955. Hon. EZRA TAFT BENSON,

Secretary of Agriculture, Washington, D.C. DEAR MR. SECRETARY: The Eight State Burley Tobacco Committee recommends and respectfully requests you to recommend to the Congress that legislation be enacted

A. To discourage production of excess tobacco :

1. Provide that production of nonquota tobacco shall not give any entitlement to a quota.

2. Provide that excess production by an allotment producer shall result in a penalty of allotment reduction in an amount equal to the excess production in the prior year.

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